Shares retain gains, Aussie felled by rates and coal woes

LONDON: Signs the United States and China were tackling some of the stickiest issues in their trade war kept world shares near a four-month high on Thursday, though it could not prevent a favourite Chinese proxy, the Aussie dollar, hitting the skids.

A mixed bag of economic data ranging from disappointing U.S. durable goods orders to slightly brighter French PMI data meant Wall Street was set for a more choppy start than had initially been expected.

Some poor company earnings and ongoing Brexit confusion had sapped the main FTSE, DAX and CAC 40 bourses in Europe following a somewhat more eventful session in Asia.

MSCI's main Asia-Pacific index had struck a new a 4-1/2 month high after sources told Reuters overnight that U.S. and Chinese negotiators were drawing up six "memorandums of understanding" to help ease their trade feud.

They include forced technology transfer and cyber theft, intellectual property rights, services, currency, agriculture and non-tariff barriers to trade, the sources said, adding the two sides were pushing for an agreement by a March 1 deadline, after which U.S. tariffs on Chinese imports will ratchet up.

The day's biggest mover though was the Aussie dollar.

It had slumped more than 1 percent after one of the country's big banks, Westpac, called for two RBA rate cuts this year and Reuters reported that the Chinese port of Dalian had banned imports of Australian coal. Coal is Australia's biggest export earner.

"It is hard know how much of this is in the price considering the fall we saw from the Aussie dollar last year," said State Street's EMEA Head of Macro Strategy, Tim Graf.

It is still up this year, however, which means "there is totally scope for further downside".

The Aussie was last trading at $0.7105, down 0.8 percent on the day and it was not the only one struggling. The Kiwi dollar got bundled down 0.5 percent in the fallout and the U.S. dollar went back in the red after the durable goods miss.

The euro too spent its day dithering between $1.1318 and $1.1366. French PMIs had been reassuring but were then followed by news that euro zone factory output had unexpectedly slammed into reverse last month as activity in Europe's manufacturing powerhouse Germany declined again.

IHS Markit's Flash Composite euro zone Purchasing Managers' Index, which is seen as a good guide to economic health, rose to 51.4 this month from a final January reading of 51.0, above a Reuters poll median expectation for 51.1 but still below where it has been for much of the past four years.

"The euro zone economy remained close to stagnation in February. The general picture remained one of a more subdued business environment than seen throughout much of last year," Chris Williamson, IHS Markit's chief business economist said.

Williamson said the results pointed to first-quarter euro zone growth of just 0.1 percent, below the latest Reuters poll estimate for 0.4 percent. They come soon after the European Central Bank ended its more than 2.6 trillion euro asset purchase stimulus programme.

FED AFFIRMS "PATIENT" STANCE

The slide in the Aussie dollar had helped its share market   close at a six-month high. Japan's Nikkei had ended 0.1 percent stronger too and though Chinese shares sagged, the yuan firmed to its strongest level since July in the "offshore" market on the trade hopes.

Sterling shrugged off Fitch putting its UK credit rating on a formal downgrade warning amid uncertainty about whether the country's parliament will be able to agree a transition deal before next month's planned Brexit date.

Wall Street stock futures were 0.2 percent lower after the early U.S. data flurry and as traders continued to digest the Federal Reserve's affirmation on Wednesday that it will be "patient" on further interest rate rises

The central bank had also signalled it would soon lay out a plan to stop letting go of $4 trillion in bonds and other assets, though policymakers are still debating how long their newly adopted "patient" stance on U.S. rates will last.

In the commodity market, crude prices pulled back having risen more than 1 percent on Wednesday to their highest in 2019 on hopes that oil market supply will balance later this year.

U.S. crude was last down 0.2 percent, or 10 cents, at $57.08 per barrel. Brent was 0.4 percent, or 23 cents, weaker at $66.85 and Gold was down a touch at $1,333 having scaled a 10-month peak of $1,346.70 on Wednesday.